Welcome to Russia’s Silicon Valley

By Courtney Weaver in Moscow

When a group of 15 Russian entrepreneurs were recently welcomed as the newest members of Moscow’s Skolkovo innovation hub, they would have been forgiven for thinking they had accidentally ended up as contestants on a game show.

At a promotional event in July, long-legged models were on hand to present the entrepreneurs with prizes, while pop music muffled their acceptance speeches and explanations of their projects.

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The Kremlin is working hard to position Skolkovo as a hallmark of its modernisation programme and a key part of its strategy to diversify away from oil and gas. The country will launch a “blitz tour” across the UK, Spain, France and Germany this autumn as it looks to draw in foreign investors to help create a Silicon Valley in Russia.

The ultimate goal is to build a hub where Russia’s young entrepreneurs can share resources, and feed off each others’ ideas, with multinationals having their pick of the country’s best talent and start-ups. There will also be a university created in conjunction with the Massachusetts Institute of Technology, which is set to be up and running by 2014.

So far, Skolkovo has signed memorandums of understanding with Dow, Intel and Cisco, while Siemens, GE and Nokia-Siemens have all agreed to build research and development centres at the 400 hectare site and pledged to invest up to $50m each.

Viktor Vekselberg, the Kremlin-appointed head of the project and oligarch shareholder in TNK-BP, said the innovation hub had already received the promise of $3bn in government funding over the next three years. But the project would also seek to secure an equal amount from private groups, ranging from multinationals such as General Electric and Siemens, who have agreed to invest, to midsized enterprises and universities.

“To us international contacts are key . . . The issue of commercialisation, the issue of knowing how to convert this scientific knowledge into real products within the real sector of the economy – we are lagging behind in those areas,” Mr Vekselberg told the Financial Times.

“The project of Skolkovo was created to plug this hole. But we need to use international experience.”

However, the project is also battling scepticism from people who worry the project is little more than window dressing. Critics question the merits of top-down innovation projects and wonder how committed the Kremlin and its foreign partners will be to Skolkovo in the long term.

The underlying concern is that Skolkovo will fall into the trap of other grand Russian projects that get so big in scope they become difficult to deliver.

“In the past when I told someone I wanted to show them the Russian soul, I would bring them to the Kremlin and I would show them two objects: the biggest cannon gun that was never shot, and the biggest bell that never rang,” says Alexander Galitsky, managing partner of Almaz Capital Partners and an adviser to Skolkovo.

The Kremlin has earmarked Rbs5bn ($172m) to be given to 130 start-ups this year, and more than Rbs10bn going towards the construction of the on-site university and the technopark.

At the moment, little exists at the site, and construction cannot kick off until the organisation installs basic infrastructure such as electricity and water supply.

So far Skolkovo has been praised for its transparency, at least in the way it hands out grants. Start-ups file applications online and are judged by a randomly selected group of Russian and foreign experts in a bid to prevent corruption.

But for the multinationals there are questions about the Kremlin’s long-term commitment to the project.

While the foundation has already started to tempt partners with benefits such as exemptions on VAT and customs and the promise of getting first pick of Skolkovo’s pipeline, few companies have been willing to make firm financial commitments and seem to be hedging their bets, says Matt Lasov, director of research at Frontier Strategy Group.

“The list of companies associating its name with Skolkovo continues to increase. But it’s mostly MOUs and that’s all it is: an agreement in name only,” he says.

“Like anything new in Russia they want to see how it pans out. They want to make sure nobody gets burnt.”

Kristina Tikhonova, head of Nokia Siemens Networks in Russia, says the group decided to invest in Skolkovo because it appeared to offer more transparency and eliminated some logistic barriers.

The company considers Skolkovo a “great project”, she emphasises, but also one “that needs the next generation of political leaders to continue and support [it]”.

Whether Russia can create the next Silicon Valley is another question. While the country has exported some of its best talent there, including Mr Galitsky, an old friend of Google’s Eric Schmidt from Sun Microsystems, with the current legal environment it is doubtful the Kremlin can replicate the same thing back home, Mr Lasov says.

“It’s not going to be like Silicon Valley in five to 10 years. But it could be a place like Bangalore was a decade ago,” he says.